Here are some of the highlights of the most recent announcements:
•Small business tax rate reduction
The government has reversed its previous decision to halt the continued reduction of the small business tax rate applicable to the first $500,000 of active income in a qualifying corporation. Effective January 1, 2018, the federal tax rate on this income will drop from 10.5% to 10% with a further reduction to 9% effective January 1, 2019.
•Limitations on capital gains exemptions and conversion of income to capital gains
The government has lifted the proposed measures that would have limited taxpayers’ access to their lifetime capital gains exemptions on certain transactions or convert income to capital gains. This will help ease the burden on those business owners that wish to pass their business on to family members. “Pipeline planning” will also still be available for those who have passed away while still in ownership of these shares.
•Taxation of corporate investment income
There are no expected changes to the current income tax rates on investment or passive income earned within a corporation up to a limit of $50,000 of investment income earned per year. The mechanics of the additional tax on investment income in excess of $50,000 are yet to be released.
Revised proposals are expected this fall, but the government has made no indication that they will be softening the proposed rules put forth in their July 18, 2017 announcements. This may result in much higher personal income taxes for dividends paid to family members who are also shareholders of private corporations.
What does this mean for you?
Everyone has a different set of circumstances and stands to be impacted by these proposals in varying degrees. It is clear that the response from taxpayers across the country has put pressure on the federal government to revisit these proposals and take the time to properly assess the impacts of any changes on our overall economy. As they sit right now, these proposals are not yet law and are still subject to alteration.
We’re here to help
Our partners and staff are staying on top of these changes and have already talked to many of our clients about these proposed changes. If you have questions about how these changes could affect your business and what actions may be required of you, please let us know. We’re more than happy to walk you through this ever-changing landscape so that we can stay ahead of the curve together.